Dana Incorporated has announced strong financial results for the third quarter of 2018.
"In the third quarter, Dana continued its strong revenue growth, a result of improved end-market demand, market share gains, and the launch of our strong sales backlog, including our class-leading Spicer SmartConnect all-wheel drive system featuring Spicer AdvanTEK axle technology, which was recently named a finalist for the prestigious PACE Award," says James Kamsickas, Dana President and Chief Executive Officer. "Our team also continues to execute on strategic inorganic priorities, highlighted by the recent announcement of a definitive agreement to acquire the Drive Systems segment of the Oerlikon Group. Combined with the recent acquisition of TM4, Dana is the only mobility supplier with full e-Propulsion system capability."
Third-quarter 2018 Financial Results
Sales for the third quarter of 2018 totaled $1.98 billion, compared with $1.83 billion in the same period of 2017, representing an 8% increase. Adjusted for currency translations, due primarily to weaker Latin American currencies compared with the U.S. dollar, sales increased 10% over the same period last year. This double-digit growth on a constant currency basis was mainly the result of continued high demand across all three end markets and conversion of sales backlog.
Dana reported net income of $95 million for the third quarter of 2018, compared with net income of $69 million in the same period of 2017, primarily due to increased operating earnings associated with higher sales.
Diluted earnings per share were $0.65, compared with earnings per share of $0.46 in 2017.
Adjusted EBITDA for the third quarter of 2018 was $240 million, an increase of $24 million, or 11%, over the same period last year. This was driven principally by higher end-market demand, conversion of the sales backlog, and acquisition synergies while being partially offset by the effects of currency translation and higher commodity costs. Adjusted EBITDA margin was 12.1% in this year's third quarter, a 30 basis-point improvement over last year. Stronger sales and operational performance more than offset the margin headwind attributable to the effects of higher raw material prices and the associated material recovery reflected in sales.
Diluted adjusted earnings per share were $0.77 in the third quarter of 2018, compared with $0.59 in the same period last year, reflecting the higher year-over-year operational earnings improvement.
Operating cash flow in the third quarter of 2018 was $124 million, compared with $181 million in the same period of 2017. Higher working-capital requirements to meet increased demand and elevated cash taxes due to regional profit mix more than offset the benefit of stronger earnings. In combination with slightly higher capital spend, free cash flow was $34 million in the third quarter of this year, compared with $99 million in 2017.
Company Affirms 2018 Guidance Ranges
Sales for this year are expected to be at the high end of the company's guidance range, resulting in 12% growth over last year. The year-over-year improvement is due principally to continued strong end-market demand and conversion of its new-business backlog. With the increased level of commodity cost inflation, associated recoveries are expected to comprise approximately $65 million of the year-over-year sales comparison.
Adjusted EBITDA in 2018 is now expected to improve by approximately $130 million from 2017 for a margin improvement of 40 basis points. This improvement is driven primarily by higher sales levels, ongoing efficiency benefits, and acquisition synergies. The expected full-year margin reduction attributable to inflationary material recoveries of $65 million in sales and higher raw material costs of $105 million approximates 70 basis points.
Free cash flow is expected to be approximately 3% of sales due to slightly lower adjusted EBITDA and a higher level of working capital required by accelerating customer demand and the timing of new business ramp-up.
"As we finish strong this year, we are positioning our operations for continued profitable growth," says Jonathan Collins, Executive Vice President and Chief Financial Officer of Dana. "Through the third quarter, we have achieved 15% year-over-year sales and profit growth, despite rising material costs. Over the last 3 years, we have improved margins an average of 40 basis points per year, and we remain confident in our business performance and our ability to continue to improve margin."
2018 Full-year Financial Targets
- Sales of $7,750 to $8,050 million;
- Adjusted EBITDA of $950 to $1,010 million, an implied adjusted EBITDA margin of approximately 12.0%;
- Diluted adjusted EPS1 of $2.75 to $3.05;
- Operating cash flow of approximately 7.0% of sales;
- Capital spending of approximately 4.0% of sales; and
- Free cash flow of approximately 3.0% of sales.
